Corporate Accounting Report: Addressing Issues and Justifications

This report delves into several crucial corporate accounting issues, addressing concerns raised by a CEO regarding intra-group transactions. The report provides a detailed explanation of why intra-group transactions are recorded and subsequently eliminated when preparing separate financial statements. It then examines the implications of inventory transactions between parent and subsidiary companies, including adjustments to inventory and cost of goods sold accounts. Further, the report addresses depreciation and accumulated depreciation adjustments resulting from noncurrent asset transactions within the group. The report also clarifies the accounting treatment for transactions when a parent company sells stock to a subsidiary, which is then sold to a third party, as well as providing an analysis of dividend payments between parent and subsidiary companies. The conclusion emphasizes the importance of effectively adjusting intra-group transactions to ensure accurate consolidated financial statements.

TITLE
CORPORATE ACCOUNTING

TABLE OF CONTENT
 INTRODUCTION
 ISSUE 1
 ISSUE 2
 ISSUE 3
 ISSUE 4
 ISSUE 5
 CONCLUSION
 REFERENCES

INTRODUCTION
The term corporate accounting can be understood as a
form of accounting which is linked to process of preparing
final account of companies at the end of an accounting
period. This accounting is also used for analyzing and
interpreting of prepared financial statements so that
effective decisions can be carried out by managers.

ISSUE ONE
Overview: This issue is related to deleting the intra group
transactions before preparing consolidated financial
statements. The CEO is unable to understand that why
their accountant recorded these transactions and now
deleting them.
Justification: In order to know about this technical issue
this is important to know about what are the intra group
transactions:

Intra-group transactions
These transactions can be defined as those which
occurs due to dealing among different groups of a
company. In Rock enterprise limited, these
transactions evolve as they deal with their various
subsidiary companies in a particular accounting cycle.

Reason of recording intra group transactions
The main reason behind recording these transactions in
books of accounts is that it neglects the possibility of dual
counting of net assets and liabilities. It is so because
during transaction among different groups of company,
there can be chance of mistake of recounting of assets and
liabilities of all groups of companies. Like in Rock
enterprise limited, their accountant has recorded these
transactions for similar objective that is explained above.

Reason for deleting intra group transactions
As above mentioned that intra group transactions are
done among different groups or branches of a company.
In the case when accountant wants to produce separate
financial statement of each branch then these transactions
are eliminated from the books of accounting. In addition,
the happened transaction between different groups may
lead to increased level of cost.

ISSUE 2
Overview of issue- The issue is related to reducing and credit inventory
account as well as cost of goods sold account. As the CEO of Rocking
enterprise limited is unable to understand this concept of accounts during
making transaction of inventories between subsidiary and parent company.
Justification- During intra transactions of inventory, sometimes parent
company sells stock to subsidiary company. As well as subsidiary company
also sells inventories to parent company. Due to this transaction, it becomes
essential to make adjustments in different accounts relating to stock due to
following reasons:

Impact on inventory account
As per the issue, this can be find out that parent
company is selling goods at profit or at markup price.
Eventually, it is a sort of benefit or income for the
parent company but on the other hands this is a loss
for subsidiary company because they are paying more
for purchasing goods from own group.

Impact on cost of goods sold account
The exchange of inventories between parent and
subsidiary company is done without any paper work.
In the case when this is recorded and if parent
company is selling inventories to subsidiary company
then this will impact of overstating company on
parent company.

ISSUE 3
Overview of issue-The issue is related to making adjustments in depreciation
and accumulated depreciation accounts due to transaction of noncurrent assets
from one company to other company of same group. The CEO of company is
not able to understand that why this transaction has been done by their
accountant.
Justification- There is a particular reason for which these transactions are
recorded in the both accounts. Before understanding this aspect, it is necessary
to know about depreciation and accumulated depreciation that is explained
further. Herein, below justification to make these transactions has been done in
such manner:

Concept of depreciation and accumulated depreciation
Depreciation: The depreciation costs are the component assigned to
the cost of the fixed capital of a firm and correlates to the time period.
On the income statement the depreciation cost is known as a non-cash
expenditure that decreases the operating profit of the company.
Accumulated depreciation: The accumulated depreciation account is a
contra-account of the balance sheet of a company and implies it has a
surplus of credit. The statistic indicates a decrease on the balance
sheet of the overall recorded capital assets.